Entertainment Start-Up Secures $600K; St. Thomas Invests

St. Thomas’ William C. Norris Institute has invested $100,000 in the company, Cram Worldwide; the institute’s director is particularly interested in the potential for students to use its multi-touch tablet to access textbooks while ensuring that the content isn’t pirated.

A local start-up that provides personalized entertainment secured $600,000 in seed funding in its first round of financing that closed last week—and the University of St. Thomas is among the investors.

White Bear Lake-based Cram Worldwide, LLC, will officially launch its product at the national Consumer Electronics Show in January. But it’s already garnered significant interest from the business community.

How it Works

Cram has developed a device in the form of a cartridge—CEO and cofounder Daren Klum calls it a “portable media gateway”—that stores movies, television shows, music, and educational programming. Users can connect the device directly to a television or other electronic device and watch content directly through it—or they can stream content to gaming systems, computers, and other electronics within their home wireless networks; up to 360 movies can be stored on a single device.

Klum—who founded Rochester-based custom computer systems manufacturer Hardcore Computer several years ago—got the idea for Cram when he looked at how much he was spending on his cable and Internet bills. “I was asking myself: Do I really need to have all these connections when all I really want is the content?” he said. “Why is no one creating a business model around the hard drive?”

For $20 a month, users will be able to gain access to unlimited content. They can select specific programs, movies, or songs—or subscribe to channels centered around specific genres or topic areas. Klum said that those who have an Internet connection will be able to download content to load onto their devices, and those who don’t can turn in old ones and get new ones by mail.

“It’s putting the entire Red Box kiosk in the palm of your hand,” says Klum, adding that significantly more content will be available through Cram’s device than a single Red Box kiosk—including black-and-white movies from decades past and current TV shows. “My end goal with Cram is to spread knowledge around the world.”

Cram—which was recently named a Minnesota Cup semifinalist and is competing for the title in the 2011 competition—will not only make money through subscriptions to its content library; it will also secure revenue through an opt-in advertising model. Users who agree to have self-selected ads embedded in their devices will get a reduction in their monthly fees. Advertisers, meanwhile, will have the added benefit of knowing who’s accessing their content.

The device will initially be marketed to “the gatekeeper of content for the family—mom,” Klum explains. But he’s already working on the second phase of the device—a multi-touch tablet. Klum is now in discussions with an England-based manufacturer about making both the first- and second-phase devices, and Klum plans to launch the tablet in late 2012.

Investors and Financing

In Cram’s first financing round, St. Thomas’ William C. Norris Institute—a seed fund that operates within the Opus School of Business—invested twice, providing $100,000 total.

“The basic thing I look for is something innovative that addresses an important unmet need,” said Mike Moore, director of the institute, which invests in technology start-ups. “With Cram, that unmet need is the piracy of digital content.”

St. Thomas is particularly interested in the tablets and the potential for them to replace textbooks and other curricular materials that students now carry around campus: Klum’s device has a multi-layer, hardware-based encryption system that won’t allow content to be stolen from it. He claims that it’s the first consumer device with such a high level of security.

“When you have a high-capacity, high-quality device that’s encrypted and can securely distribute those [textbooks], everybody wins,” Moore said.

Klum said he isn’t at liberty to provide the names of the eight other investors that joined St. Thomas in the recently closed financing round. But they include several “well-regarded angel investors in town”—among them, a retired UnitedHealthcare executive.

The Future

The seed funding from the just-closed round was used to design and create the prototype of the device and to test its security system. Klum says that a second, $5.5 million round of financing will begin within the next month or two—and a $20 million round could potentially follow that.

Wind River Systems, a software platforms subsidiary of Intel, helped develop the device’s operating system. Now, Klum is working on coming up with a customer service plan, automating Cram’s fulfillment system, marketing and advertising, and continuing to secure content deals.

Meanwhile, he’s also thinking about the future of his business. He hopes to eventually work with a big-box retailer like Best Buy to be able to offer hard drives that shoppers can borrow directly from brick-and-mortar stores. And he wants to market his product worldwide in the coming years.